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  • Chapter 4 – Competitive Advantage – Cost and Differentiation

    In this chapter 4, after analysing the environment and the internal resources and capabilities, we focus on the source of C.A. and its types (reading: chapter 8 GRANT 2011 book).

    Three parts:

     The emergence of competitive advantage

     Sustaining C.A.

     Types of C.A.: Cost and Differentiation

    Strategic Management – Eva Perea - UAO

  • Middle stream

    (Manufacturing)

    VA

    The Stan Shih Smile Curve (I)

    BC

    Higher

    Lower

    Upstream

    ( R+D+i)

    Downstream

    (Services)

    The STAN SHIH SMILE CURVE

    Value Added

    Business Chain

    Business Activity can be brokendown into...

  • Middle stream

    (Manufacturing)

    VA

    The Smile Curve: Breaking down Business Chain...

    BC Upstream

    ( R+D+i)

    Downstream

    (Services)

    Patent &

    Technology

    High VA Making

    Assembly &

    Manufacturing

    Low VA Making

    Marketing & Branding

    & Services

    High VA Making

  • Middle stream

    (Manufacturing)

    VA

    The Smile Curve: Breaking down Business Chain...

    BC Upstream

    ( R+D+i)

    Downstream

    (Services)

    R+ D + i

    High VA Making

    Assembly & Manufacturing

    Low VA Making

    Branding

    High VA Making

    Tech

    Design

    Key Parts &

    Component

    Suppliers

    Sales after Service

    Logistics &

    Distribution

    Marketing

    Services

    Education &

    Consulting

  • Middle stream

    (Manufacturing)

    VA

    The Smile Curve: The Sinking in the middle...

    BC Upstream

    (R+D+i)

    Downstream

    (Services)

    Patent &

    Technology Assembly &

    Manufacturing

    Marketing & Branding

    & Services

    VA (1980s & 1995)

    VA (2000s - Present)

    The middle… … is sinking

  • Middle stream

    (Manufacturing)

    VA

    Mapping Spanish Hidden Champions & Brand Champions

    BC Upstream

    ( R+D+i)

    Downstream

    (Services)

    High VA Making Low VA Making High VA Making

    PORDAMSA

    COSMIC

    RIUS

    http://www.mtg.es/en/index.php http://www.mesoestetic.com/ http://www.dinalager.com/ca/index.php http://www.abantia.com/ http://www.boboli.es/ http://www.ausa.com/ http://www.shad.es/es/shad-world/ http://www.ultramagic.com/index.php http://www.carinsa.es/ http://www.lekue.es/ca/ http://www.graphenea.com/ http://www.buff.eu/es_es/

  • Chapter 4 – Competitive Advantage – Cost and Differentiation

    1. The emergence of competitive advantage

    But first, what is competitive advantage?

    “When two or more firms compete within the same market, one firm posseses a competitive advantage over its rivals when it earns a persistent higher rate of profit”

    (Are we talking about superior profitability? Almost… but the firm may delay current profit in favour of investment in market share, technology, customer loyalty, executive perks…)

    Strategic Management – Eva Perea - UAO

  • Competitive Advantage What are the main characteristics of a C.A?

    -It must be something difficult to match – difícil de igualar.

    - It has to be unique

    -It must be possible to sustain it in time

    -It must be superior to the competitors´

    Examples of C.A.:

    -Superior product quality - Patents

    -Brand, reputation - Employees´ skills

    -Location - Customer knowledge

    Strategic Management – Eva Perea - UAO

  • Chapter 4 – Competitive Advantage (C.A.)–

    How does C.A. emerge?

     External sources of change:

    - changing customer demand

    - changing prices

    - technological change

     Internal sources of change

    - some firms have greater creative and innovative capability. Hibridación, xej.

    Strategic Management – Eva Perea - UAO

  • Chapter 4 – Competitive Advantage (C.A.)–

    Rule of thumb: more turbulent environment + greater differences in firms´resources and capabilities = greater dispersion of profitability

    Example:

     Tobacco industry: stable external environment + similar leading firms = small profit differences.

     Toy industry: unpredictable changes in demand, technology and fashion + leading firms diff strategies= huge profit differences.

    Strategic Management – Eva Perea - UAO

  • Chapter 4 – Competitive Advantage (C.A.)–

    Any external change creates an opportunity for profit.

    •Who will beneft from it? The firm able to respond to change the fastest: speed of response is critical to exploit a new business opportunity.

    Strategic Management – Eva Perea - UAO

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  • Chapter 4 – Competitive Advantage (C.A.)–

    As markets become increasingly turbulent,

    responsiveness to external change becomes

    + important as a source of C.A.

    Strategic Management – Eva Perea - UAO

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  • Chapter 4 – Competitive Advantage (C.A.)–

    Example:

    • Wal-Mart: business system that responds quickly to changes in demand. Decisions are taken at the store level. That means: low inventories, few stock- outs, few forced markdowns. That is their C.A.

    • But what else? There has to be an internal reason. Initiative is rewarded and encouraged at all levels.

    Ex. Conference on innovation…

    Strategic Management – Eva Perea - UAO

  • Chapter 4 – Competitive Advantage (C.A.)–

    Responsiveness means anticipated changes:

    • One key resource: information.

    • One key capability: flexibility.

    Firms are learning to be less dependent on “conventional data and market analysis” and more dependent on “early warning systems”: direct relations with customers, suppliers and competitors. Ex.this week Avery: tapes in car doors

    Ex. Dell Computers (order 9am delivered 9 pm following day; 10 days inventory) and Zara (3 weeks time new model delivery).

    Strategic Management – Eva Perea - UAO

  • Chapter 4 – Competitive Advantage (C.A.)–

    Speed through: • manufacturing • sales and distribution • innovation This is the C.A. of most Japanese industries. This increased speed has become possible only through internet, real-time data exchange and business processes reengineering these changes have enabled companies to reduce cycle times drastically.

    Strategic Management – Eva Perea - UAO

  • Chapter 4 – Competitive Advantage (C.A.)–

    Competitive process as “creative destruction”

    Strategic Innovation: new ideas and new knowledge that goes a lot further than just “product innovation” or “t